The EU and APIs: Changing the Rules of the Game in Manufacturing

By Patricia Van Arnum - DCAT Editorial Director

November 6, 2018

Innovator and generic-drug companies are squaring off on a proposal by the European Commission (EC) for an export manufacturing waiver for supplementary protection certificates (SPCs) in the European Union (EU). What are the implications for pharmaceutical companies and manufacturers of active pharmaceutical ingredients (APIs)?

SPCs extend protection of patented medicines in the EU by up to five years to compensate for the time lost in obtaining regulatory approval of the medicine. During this period, European manufacturers of generic-drugs and biosimilars cannot produce their medicines in the EU. The EC proposed an export manufacturing waiver to SPCs earlier this year, and both innovator- and generic-drug companies are seeking changes.

Manufacturing and SPCs

The purpose of the original EU legislation that authorized SPCs, which was enacted in 1992, was to recompense product-development companies for the time taken to obtain regulatory approval of their medicines and give them longer market exclusivity in the form of a SPC. The SPC regulation, however, according to some, has had the unintended effect of putting the European generic-drug, biosimilar, and active pharmaceutical ingredient (APIs) manufacturing industries at a competitive disadvantage vis-à-vis manufacturers producing in non-EU countries where no similar patent/SPC protection exists. During the time of SPC protection, EU-based manufacturers of generic drugs or biosimilars cannot produce generic or biosimilar versions of these medicines for sale in the EU, export these medicines to countries where the SPC does not apply, or produce and stockpile medicines for the EU market in advance of the day of SPC expiry. Critics of SPCs say that European manufacturers are currently required to outsource production outside Europe to supply countries without SPCs or where SPCs expire earlier than in Europe in order to provide competition as soon as SPCs expire in Europe.

To address that issue as part of its Single Market Strategy, the EC proposed in May 2018 a regulation to address several key issues with SPCs. First, the EC wanted to address the loss of export markets, including new business opportunities, and a lack of timely (meaning Day-1) entry into EU member states following expiry of the SPC for EU-based manufacturers of generics and biosimilars.

Second, the EC also wanted to address what it called the “fragmented implementation” of the SPC regime in EU member states and of the Bolar patent exemption. The Bolar patent exemption speeds entry of generic medicines into the market by allowing early preparatory development on generics to obtain pre-market regulatory approval even when the SPC of the reference medicine is still in force. The Bolar exemption is regulated at the EU level for the pharmaceutical industry only. The scope of the EU Bolar exemption has been updated in some EU countries to meet new pharmaceutical-related requirements. The Bolar exemption enables generic and biosimilar medicine developers to undertake research and development in order to obtain regulatory approval for their products.

The EC’s proposal calls for a manufacturing waiver during the term of an SPC that would take the form of an “exception,” or in other words, a restriction, to the protection conferred to the SPC. It would allow generic and biosimilar developers to manufacture, in an EU member state during the term of an SPC, for the exclusive purpose of exporting their products to non-EU markets where patent or SPC protection has expired or never existed.

The EC says that the proposed manufacturing waiver for export purposes would remedy competition issues. “While Europe’s trading partners are increasingly involved in the manufacturing of generics and biosimilars, EU-based manufacturers of generics and/or biosimilars face a significant problem: during the SPC period of protection of the product in the EU, they cannot manufacture for any purpose, including export outside the EU to countries where SPC protection has expired or does not exist while manufacturers based in those non-EU countries can do so,” said the EC in its proposal.

“This problem puts EU-based industry at a disadvantage vis-à-vis manufacturers located outside the EU, not only in global markets, but also in Day-1 EU markets,” said the EC in its proposal. “This is because the certificate [SPC] makes it more difficult for EU manufacturers to enter the EU market immediately after its expiry, given that they are not in a position to build up production capacity until the protection provided by the certificate has lapsed. The same is not true of manufacturers located in non-EU countries where protection does not exist or has expired. The problem is aggravated by the dynamics of the generics/biosimilars markets whereby, after expiry of patent/SPC protection of the reference medicine, only the first few generics/biosimilars to enter the market capture a significant market share and are financially viable.”

The manufacturing waiver for export purposes would allow EU-based manufacturers of generics and biosimilars to manufacture during the term of SPCs for the exclusive purpose of exporting their products to non-EU markets where protection does not exist or has expired. The EC said it would also address, to a certain extent, the EU Day-1 entry issue. “…[A] manufacturer having set up a manufacturing line for export purposes will easily be able, after SPC expiry, to use the same line to manufacture generics or biosimilars with a view to swiftly supplying the EU market,” said the EU in its proposal. “Obviously, these manufacturers would have to comply fully with the applicable pharmaceutical legislation and, for instance, possess a valid marketing authorization at the time the products are placed on the EU market.”

In proposing a manufacturing waiver for export purposes, the EC emphasized that the proposal leaves SPC protection fully intact with regards to placing products on the EU market. SPC holders will keep their market exclusivity in EU member states during the full SPC protection term. The EC also highlighted that the proposal is accompanied by a series of safeguards to ensure transparency and avoid the possible diversion into the EU market of generics and biosimilars for which the original product is protected by an SPC. Businesses intending to start manufacturing for export purposes will be under an obligation to notify the competent authorities, and the information contained in that notification will be made public. They will also have to comply with due-diligence requirements, chiefly to prevent goods manufactured for export from being diverted into the EU market. Finally, any export of SPC-protected products outside the EU will be subject to compliance with specific labelling requirements.

Status of the EC proposal

The EC’s proposal would amend EU Regulation 469/2009 on SPCs for medicinal products subject to the adoption by the European Parliament, the legislative body of the EU, and European Council, which is composed of the heads of state or government of the 28 EU member states, the European Council President ,and the President of the European Commission, and which sets policy priorities and strategy. If adopted, the measures in the proposal would be directly applicable in all EU member states and be subject to review after five years, according to the EC proposal.

Subsequent to the EC’s proposal, other parties have proposed further changes. In September 2018, the European Parliament’s Committee on Environment, Public Health and Food Safety (ENVI) issued a draft opinion in support of an SPC export manufacturing waiver with further changes, which were also supported by Medicines for Europe, which represents generic-drug and biosimilar companies in Europe. The ENVI’s draft opinion not only supported a manufacturing waiver for export, but also introduced a stockpiling waiver to provide generic and/or biosimilar manufacturers more incentives to manufacture within the EU and not in third countries, which are countries not in the EU or in the European Free Trade Association, which includes EU member states and Iceland, Norway, Liechtenstein, and Switzerland. It also called for changes to facilitate Day-1 launch of generics in the EU and remove measures relating to the disclosure of commercially sensitive information in notification requirements.

Industry feedback: EU generic-drug industry

Medicines for Europe supports the changes offered by ENVI. “ENVI’s draft opinion is a significant one,” said Medicines for Europe in a September 17, 2018 statement…”ENVI’s amendments to the Commission’s original proposal, including the need for Day-1 launch and the removal of the disclosure of some commercially sensitive information enhance the proposal further. At the same time, some additional improvements to the proposal can be achieved, especially with regard to the need for applying the SPC manufacturing waiver as soon as possible in order for it to serve the purposes it is meant for, as well as making sure that the system can function, notably getting rid of the disclosure of all of the commercially sensitive and confidential information within the notification requirement.”

Strengthening measures for Day-1 launch and removal of certain notification requirements are important changes being called for by Medicines for Europe. “The current proposal [EC proposal] would not allow EU-based manufacturers to prepare for Day-1 launch in advance of SPC expiry in the EU, but only for export to non-EU countries where the SPC does not apply, that would not produce effect before 15–20 years from now and with the mandatory disclosure of commercially confidential information, in contrast with the existing EU rules on trade secrets and approved EMA [European Medicines Agency] guidance on confidential business information disclosure,” said Medicines for Europe in an October 11, 2018 statement. “The requirement to release this information to competitors (generics and/or originator) would create a unique precedent in the entire EU legislation that could go beyond the pharmaceutical sector only.”

While supporting the export manufacturing waiver, Medicines for Europe is calling for several additional changes to the EC proposal:

A clear provision for Day-1 launch to allow generic and biosimilar manufacturers to produce in the EU to be prepared for launch in the EU market after the SPC expiry;

Removal of requirements for manufacturers using an SPC manufacturing waiver to undertake what it terms “anticompetitive” notification processes to EU intellectual property (IP) regulators, which, “if left unchecked would have a significant dissuasive effect regarding the use of the manufacturing waiver,” said Medicines for Europe in its October 11 statement. “The disclosure to the SPC holder only of any commercially sensitive information would have significant dissuasive effect regarding the use of the manufacturing waiver, making the legislation effectively useless.”

An immediate application of the waiver to existing SPCs as “otherwise it would negate the opportunities presented by the next significant ‘patent cliff’ as of 2020;

Better clarity for the meaning of “maker” and “making” to ensure a coverage of all activities that would deliver fully on the expected jobs creation; and

Removing what it terms as “additional, burdensome and unnecessary” requirements related to the due diligence with each component of the supply chain.

Medicines for Europe also raised concerns about external pressure from the US relating to the SPC export manufacturing waiver. The group said that the US Patent and Trademark Office, the US Trade Office, and the US Department of Commerce, held a briefing in late October with the European Council to put forth the US position on the matter.

“The aim of the meeting is to convey the position of the US commercial bodies and representatives to EU officials on the introduction of an SPC manufacturing waiver in Europe and influence the outcome of this EU legislative proposal,” said Medicines for Europe in an October 22, 2018 statement. “This is in line with consistent efforts from US commercial interests to close the US healthcare market to biosimilar medicines…”As has been highlighted by numerous independent studies on the matter, the introduction of an SPC manufacturing waiver in Europe, if done so correctly, can deliver vast benefits for patients, EU healthcare budgets and investments in manufacturing of medicines.”

Industry feedback: EU innovator-drug industry

At the same time, the European Federation of Pharmaceutical Industries and Associations (EFPIA), which represents innovator, research-based pharmaceutical companies in Europe, has put forth its position against the SPC export manufacturing waiver and support for SPCs. “SPCs are one of the key elements of our IP [intellectual property] framework in Europe that incentivizes the search for better medicines and care for patients,” said Nathalie Moll, EFPIA Director General in an October 25, 2018 statement. “Designed by the EU to help stimulate the discovery of new treatment and cures, they [SPCs] aim to partially compensate innovators for the substantial patent time lost during lengthy clinical tests, trials, and other regulatory requirements needed to secure approval of a medicine. Around half the patent life of a new medicine is taken up by these processes. As such, SPCs are very real drivers of innovation that continue to produce tangible outcomes for patients and were for a long time unique to Europe giving the region a competitive advantage in terms of attractiveness for investments and growth.”

EFPIA argues that an export manufacturing waiver for SPCs would create economic disincentives. “We are concerned that the European Commission proposal to introduce an export manufacturing waiver to the SPC sends a signal to the world that Europe is weakening its commitment to IP incentives and innovation,” said Moll in EFPIA’s statement. “However, we also recognize the efforts to clarify the scope of the proposal as well as introduce safeguards, to mitigate potential spill-over effects that would further erode IP rights and could have the (perverse effect of) disincentivizing investment in Europe, putting jobs and economic growth at risk, as well as the advancement of patient care.”

The EFPIA said it is calling on the European Parliament and the European Council “to ensure clarity and legal certainty on what the waiver entails, the conditions under which it applies, and …not further reduce IP incentives for innovation." It outlined several key requirements it is seeking for any proposal:

Transparency and legal certainty for all parties;

A timely and fair notification system;

Labeling measures that prevent products manufactured under the SPC waiver for export from being re-directed back to the EU or being launched on the EU market before SPC expiry;

Non-retroactive implementation; and

Limited scope as per the EC proposal.

“We believe these are sensible provisions to avoid weakening Europe’s IP framework further, particularly in today’s context of intense global competition for pharmaceutical research and development investment,” said Moll in EFPIA’s statement.